Wednesday, November 5, 2008

Newalta, new dividend kid on the block

Canada's leading industrial waste management and environmental services company, Newalta currently (NAL.UN) has announced it is converting to a corporation. Newalta plans to eventually pay a quarterly dividend of $0.20/quarter (eligible dividends), this represents a yield of 8.9% on Tuesdays closing price.

Newalta also announced a 5% rise in earnings per share and that they are cutting their cap ex growth budget by 30% for 2009. Half of Newalta's growth as a company to date has been through about 50 successful acquisitions.

Here are some highlights of Newalta's distribution history
March 2003
Monthly distributions initially set at 9.0¢ per unit at conversion
Sept 2003
Distributions were increased to 10.5¢ per unit
March 2004
A further improvement was made to 12.5¢ per unit
March 2005
Distributions reached 15.0¢ per unit
Nov 2005
They were raised to 16.5¢ per unit
May 2006
Most recently, distributions were increased to 18.5¢ per unit

Newalta has shown some pretty impressive growth of the distribution since 2003, which should be noted was boom time for the oil and gas industry which Newalta relies on for a large part of their revenues (47% to be exact).

I like the Newalta story, as I believe this should be a stable and growing business and we move into a future of heightened environmentalism and attention toward the better management of waste and recycling programs. I actually had a close look at Newalta last year when I was selecting income trusts for my portfolio as part of our maternity leave strategy, where I ended up selecting IPL.UN and YLO.UN instead. At that time I ruled out Newalta because of it's heavy reliance on the cyclical oil and gas industry. This is certainly one to keep an eye on as we move into 2009.

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Potato said...

Just to clarify, the trust distribution was 18.5 cents/month, whereas the new dividend will be 20 cents per quarter, so it's a ~2/3 cut to the distribution. Nonetheless, it should be a positive, allowing for more capital appreciation. The dividend can then continue to grow from this new baseline (hopefully).

MG (moneygardener) said...

Potato, thanks for that point. The yield on Newalta was enourmous before this news broke so I am sure people were expecting this type of move.